Question

 

1. Speedy Steve is a traveling salesman. Steve’s income is $900 each week, but if Steve is caught speeding while making his rounds, he will receive a hefty fine. There is a 40% chance he will be caught speeding in any given week and pay a fine of $500. What is Steve's expected weekly income?

2. Danielle is a farmer. If the weather is good, she will earn $100000. If there is a hailstorm, she will earn only $50000. The probability of a hailstorm in any given year is 30%. What is Danielle's expected income (just enter the number, no commas)?

3. Suppose that a community health center finds that, regardless of the number of physicians or nurse practitioners employed, it can always replace one family practice physician by using two additional nurse practitioners without affecting the quantity or quality of patient office visits. This finding implies that:

A. physicians and nurse practitioners are perfect complements in production.

B. the marginal product of physicians will increase by two with every nurse practitioner hired.

C. Diminishing returns will occur as the health center hires more nurse practitioners.

D. physicians and nurse practitioners are perfect substitutes in production.

4.A basic assumption of the long run is that a firm:

A can change the amount of capital that it employs but not the amount of labor.

B cannot change the amount of capital that it employs but can change the amount of labor.

C can change the amount of labor and capital that it employs.

D cannot change the amount of labor or capital that it employs.

Answer 1

1. p1 = 100% - 40% = 60% for income, x1 = 900
p2 = 40% for income, x2 = 900 - 500 = 400
Expected income = = p1x1 + p2x2 = 60%(900) + 40%(400) = 540 + 160 = 700

2. p1 = 100% - 30% = 70% for income, x1 = 100,000
p2 = 30% for income, x2 = 50,000
Expected income = = p1x1 + p2x2 = 70%(100,000) + 30%(50,000) = 70,000 + 15,000 = 85000

3. D. physicians and nurse practitioners are perfect substitutes in production.
(They are substitutes.)

4. C can change the amount of labor and capital that it employs.
(In long run, all the factors are variable.)